Surprise! Sixty Percent of Barron’s “Top Advisors” Have Regulatory Issues


Buying Twitter followers or Facebook friends is not a good plan for most businesses looking to attract clients. The reverse is true in regards to purchasing a spot on Barron’s Top Advisors’ list. The brokerage firm gains new clients, but investors lose big time.

According to AdvisorHub, a whopping 60% of advisors on the Barron’s list over the past five years have at least one consumer complaint or other regulatory issue on their record. This compares to 7.8% of all brokers on another widely followed study.

I wrote about this in May 2015: “Advisors pay a fee to be listed in this section, but their participation has no bearing on their place in our rankings, nor does it guarantee that they will be ranked in future years.” Something is rotten in Denmark.

It turns out the fee is to the tune of $5,000! On top of this, Barron’s holds half a dozen “Summits” that they collect sponsorship dollars from the brokerage firms. In addition, they charge the individual advisors that attend these events.

As my colleague Barry Ritholtz says: Incentives Matter. Barron’s has created its own revenue-sharing or pay-to-play system for ranking advisors. It is no wonder that this process has attracted too many individuals who do not include ethics and morality as part of their business models.

I also wrote about this in February 2015. (Yes, I have no life!)

“We looked at assets under management, revenues generated for advisors’ firms, and quality of practices.” Barron’s 2/23/2015

This elite list of 1,200 advisors relies heavily on the amount of assets under management, which is typically the result of marketing, not investing, acumen. While most major broker-dealers spend about $2 on investor education, they allocate a whopping $54 to marketing of their services.

Ranking an advisor on Assets under Management and revenue generation is not investor friendly. It is no wonder that the majority of individuals who have made these lists have questionable ethics.

I wrote “Getting on a list that gives enormous credence to assets under management (AUM) and revenues produced is usually not conducive to an ideal investor experience. Proprietary funds loaded with fees create enormous revenues. While this, in Barron’s view, helps determine a top advisor, investors are on the losing end of this deal. Revenues are also generated by increased transactions and active trading. These are widely known to damage an investor’s long-term returns and increase taxes substantially. The amount of revenue generated does not a top advisor make.”

Barron’s has created a list that incentivizes activities like sales contests, revenue-sharing, and the sale of high-fee, illiquid investment products. Combine the criteria Barron’s uses to grade advisors with the fact that there is a price attached to attain membership to this “exclusive group” and you have an ethical time bomb on your hands. The recent uncovering of the regulatory violations serves as the anticipated explosion.

Imagine going to a medical practice where 60% of the physicians were being sued for malpractice? How about a college team where 60% of the athletes were using performance enhancing drugs? Obviously if this was the case, the solution would be to burn down the institutions and start over.

The same can be said for Barron’s list of top advisors. In a prior post before this regulatory bombshell was released, I had some suggestions on how to change things. Needless to say, Barron’s has not gotten back to me.

  1. Clients are provided with full financial planning services – This would include advice on insurance needs, estate and college planning, social security strategies, and budgeting/debt management. The focus would be on things that an advisor can control and not on the randomness of market returns. There would be no fancy rugs or pictures on the wall where these meetings take place. The savings would be passed along to the client.
  2. A focus on client education– Since all advisors on the list would be fiduciaries; the question of transparency would be a moot point. With no hidden fees or conflicts, the advisors would be able to fully engage clients and provide educational materials without having to worry about discussing vague or confusing compensation arrangements. Advisors would qualify for this list by educating, not selling. Advisors should also have an entertaining, plain-speak blog written in a language any non-finance major could comprehend.
  3. A minimum of conflicts of interests– While all conflicts cannot be eliminated, they can be greatly reduced. To qualify for this list, advisors would not be able to collect sales commissions, referral fees, or use proprietary funds. This would greatly reduce the perverse incentives to put revenue generation above the best interests of the client. These actions would result in increased investor returns over time.
  4. Evidenced-based investing– The focus, as Barry Ritholtz would say, will be on “University Street.” Portfolios would be created by using data that, over long periods of time, have generated the best risk-adjusted returns for the investor. This would greatly reduce the risk of getting caught up in the latest investing fads and eliminate much of the emotional components that create a drag on returns. Companies like Dimensional Funds and Vanguard are poster children for this client-friendly process.
  5. Inclusive culture– While many of the Barron’s advisors will not look at a client with a portfolio below seven figures, my new list would give advisors points for helping young people get on the right path. This could be done very easily with the inclusion of a robo-advisor in the practice. It is no longer cost-prohibitive to help out our future generation of investors. Down the road, this could reward the advisor by creating a farm team for the business. Some strategies of advisors should not just be available for the country club elite.

In effect, the real top advisor would be graded on their ability to sell wisdom, and not product.

This would also involve removing any payments to or fancy “summits” sponsored by Barron’s that has only been proven to throw more kerosene onto to the fire. Barron’s response to these findings gives a new definition to the term lame. Barron’s maintains its lists represent “the state of the art in outstanding wealth management.”

If this entails having advisors faces implanted in old west style most wanted posters, their response has some merit. If not, it is time for Barron’s to terminate this list and find new ways to create revenue for their publication that does not end up harming their readership.


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  1. Your True Risk commented on May 13

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